Wrecking Russia’s economy could be a disaster for the west

January 11, 20151,336 Views

Like a rudderless ship running out of fuel and buffeted in an icy storm, the Russian economy looks as if it is heading for a crash. All the graphs – the rouble-dollar rate, the slump in GDP, bank interest rates, oil prices – look like menacing icebergs. The only question seems to be how long the ship can stay afloat.

There are two immediate causes of the crisis: the price of oil, and western sanctions. Oil is trading at below $60 a barrel while Russia, still overwhelmingly dependent on exports of its most precious resource, needs a price of $105 to balance its books. That’s the consequence of having failed to reform and diversify the economy over the past 20 years.

As for the west’s sanctions, they were introduced with one explicit aim – to force Putin to change tack in Ukraine. At least, that was the stated aim. But since the measures show no sign of having any effect on his thinking, and yet the west is considering even more sanctions, there is obviously another goal – to punish Putin for his actions, regardless of whether he changes his mind. Sadly, it is not Putin who feels this punishment. It is the Russian people.

The west needs to accept a simple fact: that Putin’s response to sanctions is always bizarre. He tends to favour reactions that hit his own people rather than the west. America passed the Magnitsky Act to “punish” those alleged to be responsible for the killing of the lawyer Sergei Magnitsky, and Putin responded by banning adoptions of Russian orphans by Americans. There is no sign that the killers of Magnitsky suffered in any way; indeed the only official being investigated for the crime was released. The west imposed sanctions on Putin’s “cronies” and Russian banks because of the invasion of Ukraine and annexation of Crimea; and Putin responded by banning the import of western foodstuffs.

To keep repeating the same mistake again and again and expecting different results is, as they say, a sign of madness. And if by doing so you punish only ordinary Russian people, then it is also cruel – and counterproductive. Twenty years ago the dream was to rescue the former communist world and bring prosperity and democracy to its people. What we are doing now is impoverishing and alienating the Russians.

We can, of course, stick to our guns and insist that “sanctions are having an effect”. But what will we gain if the only effect is to destroy the Russian economy? Perhaps the hope is to destabilise the country so much that Putin is overthrown. (I detect much schadenfreude among observers, who desperately hope a collapse of the Russian economy will bring about Putin’s fall.) If so, it is a highly dangerous game of chance. Pouring fuel on Kremlin clan wars that we barely understand would be the height of folly. We have no idea what the outcome might be – and it could be much worse than what we have at present.

Or perhaps the hope is that the Russian people, ground down into poverty and despair, will rise up against the Kremlin and install a government of the west’s choosing. Dream on!

It has long been my contention that we should deal with the causes of Putin’s aggressive behaviour, not the symptoms. There is a way to bring him back into the fold (always assuming that anyone actually wishes to do so any more), but it will require fresh ideas that are utterly unappealing to most of the west’s leaders. It will take bold and imaginative thinking, not kneejerk reactions and the false logic of piling on ever tougher sanctions.

Perhaps it is time to recognise that George W Bush’s disastrous foreign policy legacy encompasses far more than just Iraq, torture and the fanning of terrorism. Bush also understood nothing about Russia – right from the moment that he looked into Putin’s eyes and told us how he “got a sense of his soul” – and now we are living with the consequences.

It was the Bush administration that created the sense of insecurity that has caused Russia to react, and overreact, to every perceived threat – including, most recently, the perception that Ukraine was being forcibly dragged out of Russia’s orbit and into the west’s. Bush unilaterallyabandoned the anti-ballistic missile treaty, seen by Russia as the cornerstone of strategic balance; he began building a missile shield on Russia’s doorstep; he expanded Nato to Russia’s frontiers, blithely granting the east Europeans “security” while causing Russia to feel threatened.

The solution is clear. Abandon the missile shield. End the expansion of Nato. And think boldly about a new security arrangement for the whole of Europe – one that will bring Russia in rather than leaving it outside feeling vulnerable. If this were done, everything I know about Putin and Russia tells me the crisis over Ukraine would be solved – and the Russian economy would not end up being needlessly destroyed, causing woe and bitterness among its people. If it is not done, we will have to deal with a resentful Russia for decades – for Putin’s successors will also demand security.